Over the last few years, Peer-to-Peer Lending has gained momentum not only in the US and the UK but also across the globe. This method of Lending is mainly used to fund small and medium size organizations(SMEs) and individuals seeking a personal loan.
Peer-to-Peer Lending provides the much-needed capital in the formal economy through small amount of loans originated from a large number of individuals or organizations. Below are given Top 5 Benefits-of Peer-to-Peer Lending:
- Funding SMEs and Other Users to Help Economic Growth: SMEs are an integral part of economic growth for the role they play by funding SMEs to help them develop and expand and creating new jobs and aiding economy recover. The ability to lend money efficiently and quickly for personal loans and business loans for business projects, makes Peer-to-Peer Lending (P2P Lending) very important for both governments and economies alike, as the flow of credit has taken a severe hit since the outbreak of the financial crisis in 2008.
- Peer-to-Peer Lending Model is Cost Efficient: As the nature of Peer-to-Peer Lending is online it needs less physical presence in a locale and to determine the creditworthiness of applicants it uses algorithms, unlike banks. In order to operate effectively, traditional lenders need a physical presence and manpower which further increases the overhead and thus increasing the cost of the loan for borrowers and also decreases the rate of return for investors as the administrative costs are higher than that of Online Platforms especially of Peer-to-Peer Lending Platforms. Thus making the Peer-to-Peer Lending Platform extremely cost effective.
- Peer-to-Peer Lending is Convenient: Online platforms are easily accessible to users, therefore, lenders and borrowers can manage their portfolio not only at any point in time but also from anywhere unlike traditional investments which are accessible to users at certain times to which users have to adapt themselves to. In order to update its operations and adapt its marketing and design quickly to an evolving business model, Peer-to-Peer Lending platforms on its account of online always getting an edge over Traditional Lending Platforms.
- Peer-to-Peer Lending increase competition in a space dominated by Traditional Investors: Entry of Peer-to-Peer Lending Platforms in the Investment market increases competition significantly which is not only beneficial for lenders and borrowers but also benefits the economy as a whole. Peer-to-Peer Lending creates incentives for traditional lending entities to reduce costs, increase efficiency and innovate. The presence of Peer-to-Peer Lending Entities in the market helps borrowers borrow in a timely manner and also brings down the cost of contracting a loan: Now traditional entities will have to compete with the rivals who use effective credit assessment techniques. Additionally, this competition between Peer-to-Peer Lending and Traditional Lending Entities will result in lower costs for individuals and organizations taking loans and at the same time higher return for investors.
- Growth of Peer-to-Peer Lending Model Globally: Though most of the Peer-to-Peer Lending Platforms have been lending locally only so far, few have taken this to new markets beyond the local lending markets, in other countries. If this trend proves successful, it will give a huge push to the International Peer-to-Peer Lending Business Model. Which in turn will create more and more competition in this industry and also increase its size many folds which has already been growing exponentially since the Financial Crisis of 2008.